“We have closed the negotiations and closed them well,” Ecuador’s foreign trade minister, Francisco Rivadeneira, said on 11 August in reference to the trade agreement struck with the European Union (EU) in July. A long legislative journey awaits before the trade accord can take effect but Rivadeneira was keen to stress that it had been “a very positive negotiation for Ecuador”, with widespread benefits for exporters and “extremely small” costs which were “difficult to identify”. He argued that the repercussions of failing to reach an accord would have been very negative, with “enormous unemployment in the country”.
Ecuador completed its association agreement, to use the preferred nomenclature, with the EU on 17 July in Brussels. It will be at least two years before the accord actually takes effect though, as it now has to endure a laborious and labyrinthine passage through the European parliament, the parliaments of all 28 EU member states, and Ecuador’s national assembly. In the meantime, Rivadeneira said Ecuador had won a promise from EU negotiators to use “all their political will in order to ensure that the products that don’t [presently] pay a tariff continue exempt until the accord takes effect.”
The trade benefits that Ecuador enjoys with the EU under the General System of Preferences (GSP Plus) expire in December 2014, when its exporters would technically stand to lose significant ground to Colombian and Peruvian counterparts because of higher tariffs. Peru and Colombia signed a free-trade deal with the EU in 2012 as part of the Andean Community (CAN) trade bloc, which was provisionally applied with Peru in March 2013 and with Colombia in August last year.
Ecuador’s export federation, Fedexport, says that Ecuadorean exports would face tariffs of between 2% and 40% to enter the European market without the GSP in place, costing exporters about US$375m annually. Currently, 60% of Ecuador’s total exports benefit from the GSP.
The EU is Ecuador’s biggest market for non-oil exports. Ecuador had a very small trade surplus with the EU in 2013, with its exports to the bloc totalling €2.5bn (US$3.4bn), and its imports from the EU amounting to €2.4bn. Ecuador’s export sector is optimistic that exports to the EU could rise by around US$500m under the association agreement.
Banana boost
Ecuador is the biggest supplier of bananas to the EU. Almost one in four bananas traded in the EU last year came from Ecuador. Failure to secure a trade agreement with the EU would have seen Colombia muscle in and ultimately usurp Ecuador’s position of pre-eminence. Eduardo Ledesma, the president of the association of banana exporters of Ecuador (AEBE), described the agreement as “tremendously positive for the banana sector, since we had a fairly high tariff differential with Colombia.”
Under the EU deal with Colombia, the banana tariff will fall each year to reach €75 (US$101)/t by 2020. Under the new structure, Ecuador’s banana exporters will only pay €1 (US$1.35) per tonne extra compared to Colombia and Costa Rica from 2016-2019; and the same from 2020 onwards.
The current tariff of €132 (US$178) for Ecuador was set to fall to €122 (US$164) for 2015, but without a free trade deal in place with the EU, Ecuador would have had to pay on average up to €32 (US$43) per tonne extra over the same period. Based on last year’s volume of banana exports, this equates to some €45m (US$60m) in savings. Ecuador’s banana exports to the EU totalled US$667m in 2013, down 7% from US$715m in 2012; but they stand at US$359m for the first five months of 2014 compared with US$308m in the same period last year. Ecuador’s banana exports to the EU in 2013 were more than double the amount produced within the EU, such as Spain’s Canary Islands and the French departments of Guadeloupe and Martinique, which will now seek more protection via subsidies.
Other exports to gain
Other Ecuadorean exports that stand to benefit from the improved access to EU markets are shrimp, cacao, coffee, fruits, nuts and cut flowers. Shrimp exports to the EU totalled US$625m in 2013, up 27% from US$492m in 2012. Shrimp exports were also up by a whopping 45% in the first five months of 2014 to US$356m, compared with the US$245m of exports in the same period last year. Cacao exports reached US$139m in 2013, up 38% from US$101m in 2012. They are also up 39% in the first five months of 2014 to US$71m compared with US$51m of exports in the same period last year. Coffee and tea exports stood at US$138m in 2013, up slightly from US$132m in 2012.
Rivadeneira said 76% of Ecuador’s exports would immediately enter the EU tariff-free. He also expressed the hope that the EU would also eliminate the requirement for visas, as it did with Colombia and Peru, although this was not included in the deal. He said that the government would implement “an arsenal of tools to reduce the negative effects” for certain sectors, including sensitive products like milk, meat, cereals and vegetables.
This is crucial, because the Ecuadorean government made a big song and dance about not signing up to the original trade deal along with Colombia and Peru in 2012. Fundamentally this was because of a pathological aversion to the concept of free trade (hence the insistence on the term ‘association agreement’). It is not clear that Ecuador has negotiated a deal which is really any different in substance to other trade deals or exactly what the “arsenal of tools” Rivadeneira has at his disposal to protect sensitive products are; presumably it will mean subsidies of some sort.
Ecuador will receive zero-duty access to the EU market for industrial goods, which could assist Ecuador’s agro-industrial industry. The EU will get better access to the country’s public procurement, as well as Ecuador’s adherence to the World Trade Organization (WTO) regulations regarding the protection of intellectual property rights. “I’m delighted we’ve been able to conclude this ambitious and comprehensive agreement with Ecuador,” the EU trade commissioner Karel de Gucht said. “It will boost our bilateral trade and investment, and act as an important driver for development in Ecuador.”
Deepwater port gets presidential go-ahead
Ecuador will seek investment to go ahead with the construction of a deepwater port in Posorja, a small fishing town at the delta of the Guayas River about 120km from the coastal city of Guayaquil, President Correa announced in mid-August.
In November 2013, the government contracted the Spanish state-owned consulting and engineering advisory firm Ingeniería de Sistemas para la Defensa de España (Isdefe) to find the ideal location for a 15-metre-deep-water port in the province of Guayas. Isdefe settled on Posorja. It is worth noting that in 2006, a US$450m concession to build and operate a deepwater port in Posorja was awarded to Spain’s Alianza Internacional Portuaria (Alinport), but work never began and authorisation for it was later revoked. President Correa said there were three international companies interested in investing in the deepwater port now (he did not reveal which), adding that he had “no problem if it is private investment, mixed investment or public investment as long as it’s quick”.
The race is on because when the third set of locks in the Panama Canal open in 2015, it will mean that ships with up to a 15m draft will be able to pass through. The ‘Simón Bolívar’ port of Guayaquil currently only has a depth of 9m. At present 58% of national freight goes through the state-owned, independently managed port of Guayaquil, rising to 82% if the 22 private ports located on the access channel into this port are included. The president fired a broadside at these private ports, which he described as parasitic, contributing just 5% of their profits to the State. He also said that the government had looked into dredging to 15m metres at the ‘Simón Bolívar’ port but it was “technically and economically unviable”, otherwise it would have done. The opposition mayor of Guayaquil, Jaime Nebot, begged to differ, and accused the Correa government of trying to undermine the country’s main business hub, long opposition administered. Correa said this was nonsense, insisting that the Simón Bolívar port would continue operating, with the government seeking to make it a specialist destination for cruise ships which would be “extremely beneficial for Guayaquil”.
Posorja
Posorja has a population of around 28,000. The new deepwater port would not only allow bigger ships to dock but speed up the loading and unloading of containers. The transport and public works minister, María de los Ángeles Duarte, said that one of the drawbacks of the port of Guayaquil was that it was very slow for freight ships, dependent, among other things, on the tide. Posorja, currently a private port, would be transformed with renovated piers and docks, and the town would undergo a major facelift, with myriad infrastructure projects, including perimeter roads, a seafood distribution centre and housing programmes. President Correa promised to step in if ‘speculation’ pushed house prices up quickly.
EU response
“It [the association agreement] will provide for a solid and predictable framework for Ecuadorean and European traders and investors and will also contribute to regional integration in one of the fastest-growing markets for European firms in Latin America,” the EU trade commissioner, Karel de Gucht, said. “We now have to take the necessary steps to make sure the agreement is applied as quickly as possible.”
- Mayor Jaime Nebot accused President Correa of trying to strip the port of Guayaquil of its pre-eminence, leaving it with “tourism, coasting trade or the crumbs of freight to the Galápagos islands”. He said the government had refused to dredge to 15m at the port even though it was “technically possible” and said Correa was not watching over the port of Guayaquil’s interests but wanted to “attend its burial”. He also accused Correa of conspiring to isolate private ports and cast doubt on his intention to construct the deepwater port in Posorja, claiming that he intended to build one “with public money in Manta” instead. Manta, located in the northern coastal province of Manabí, is the terminus for the ‘multi-modal corridor’ between Manta and the Brazilian city of Manaus, which aims to improve imports and exports between Asian markets and the Amazon.